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Nasdaq 100 Short Interest Reached 2008 Highs

Posted: Tuesday, September 22nd, 2020

Estimated Reading Time: 2 minutes

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Nasdaq 100 outperformed its peers in 2020. Ever since the pandemic reached the Western world, the stock market took investors by surprise.

The initial reaction lower did not survive long. In fact, what followed was the quickest reverse from a bear to bull market in history.

But short interest remains. It recently reached the highest level since April 2008. Hence, it is no wonder that Nasdaq 100 corrected more than ten percent from its highs recently.

Is the correction over? Or will the market break into bearish territory again?

Nasdaq 100

Nasdaq 100 – The Index That Outperformed in 2020

The shrinking USD liquidity translated into a market shock in March. Despite circuit breakers triggered daily, the stock market returned back to the bullish territory.

A decline larger than 20% from the highs marks the beginning of a bearish market. Also, a bounce from the lows larger than 20% represents the start of a new bullish market.

Nasdaq 100 bounced the most. It quickly made new all-time highs as the tech companies in the United States benefited from the coronavirus lockdowns. Consumer behavior changes led to people spending more time online and in front of computers. Remote work led to people investing in new infrastructure to equip a small home office. All these led to Nasdaq 100 main companies to beat earnings in the second quarter by a mile.

Amazon, Microsoft, Tesla – are just a few examples.

Shorts Building Positions

All this time, when Nasdaq 100 made new highs, shorts continued to build positions. September 2020 net short interest on the tech index reached the 2008 levels. We all know what happened next. Now that the index already corrected more than 10% from its highs, the big question is if it will break into the bearish territory.

One of the biggest problems with a rising stock market is that everyone wants to buy the dip. But usually, the dip comes with panic selling. Not only bulls panic, but also investors that wanted to buy the dip. Faced with a falling market, they often postpone their buying decision.

Therefore, if the Nasdaq 100 reaches bearish territory, investors sitting on the sidelines will likely postpone their buying decision. Also, short interest is likely reduced now. Because short-sellers know as well the implications of the index reaching 20% drawdown, the likelihood exists that they already booked some profits.

Investing in the stock market is more a psychological game than anything else. But it is far more difficult to trade an index than to invest in a stock market portfolio.

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